Article: http://www.bbc.com/news/business-43632306
When Spotify made its much-anticipated debut in the stock market today, many economists feared its unorthodox listing strategy. Rather than making new stock available through a bank (thus giving bankers and large investors the first pickings), Spotify chose a "direct listing" strategy intended to allow employees, founders, and early investors to cash in on their assets. Because of the lack of a mediating financial institution, many feared that the stock might plunge, leaving shareholders high and dry. This was an especially prominent fear due to the fact that Spotify has yet to turn a profit; it dropped $1.3 billion last year despite posting over $4 billion in revenues, and is not projected to make money for several years. However, despite these concerns, Spotify's stock price settled at a comfortable $148 (down from the $165.90 initial stock price), a turnout that likely made millions of dollars for those who initially founded the company as well as employees who sold their holdings.
Much of the preparation before the big release was centered around creating a stable offering price, as too high of an initial price could quickly transform into a massive sell-out. Luckily, by working with banking partners to gauge demand from private and potential investors, Spotify's release is largely considered a success.
Spotify's stock price reflects a valuation of approximately $26 billion dollars, far more than comparable companies' initial valuation, despite their lack of profits. For this reason, some investors are leery as to the dependability of the stock. However, Spotify has been a hit with the public, and the ad-funded service is being used in 65 countries around the world, and has 71 million paying customers, more than twice that of Apple music. This shows huge potential for growth as well as for profits once the company finally breaks even.
I personally believe that Spotify could turn out to be a great investment. There is obviously high risk, but since I am a teenager and don't really have a whole ton to lose, I will probably put some of my savings into Spotify. Worst case-scenario, it goes belly-up and I lose a relatively small amount of money. Best case-scenario, its the next Google and I'm swimming in cash. Although this is a bit of a hyperbolic cost-benefit analysis, it speaks to the position we are in as high schoolers. Any money we have now is likely small in comparison to what we will be making as adults, so we can afford to take higher risk. Granted, it is probably a good idea to put a large portion of our savings into a good index or mutual fund to ensure long-term growth, but there really isn't much to lose at this point in our lives, when we have only just begun saving money (and many of us haven't even started yet).
Do you guys think Spotify is a good investment? Why or why not? Do you think it is smart to take risk as a young person in individual stocks, or does banking on long-term growth with safer index funds, gov't bonds, and IRA savings make more sense? Is Spotify a feasible business model?
8 comments:
With many more people using spotify to satisfy their craving for music, it seems to be growing in popularity. Whether that makes it a safer stock investment is hazy, but I can see it being something you don't invest too much in. Banking on long-term growth is obviously the best choice because its a safer option. Why risk it all for a chance at gaining a big reward?
I think that in the long run, Spotify is a fairly safe investment option. As Maria previously pointed out, Spotify seems to be the go-to source for listening to music nowadays, and it keeps growing in popularity. It is also important to consider the difficulty one would face in trying to startup a new music-streaming platform, as it would be very hard to compete with giants such as Spotify and SoundCloud and come up with something new to offer consumers. Taking all of this into account, I do not think that Spotify's stocks are too risky to invest in. I am not sure how much one will profit off of investing in Spotify, as it depends how much it will grow, and how quickly. That being said, I do not think that their stocks will fluctuate too much, and since the likelyhood of new competition coming into the market is low, I think that they are a safe bet to keep succeeding, thus making them a safe company to invest in.
Unlike the two people above me, I think that Spotify is a bad investment. Firstly, this is because Spotify has a hard time making money. They make money from people that pay for premium every month (which people just cheat by using a family plan even though they are not a family) or ads which people do not even see if they are on premium. How do they lose money you ask? Each time they get a song they have to pay the artist or they have a contract where they already paid the artist a large sum of money. They may be making money but it is nothing compared to other companies. Because this is a new stock in the market it is always a risk to invest in. For example, when Facebook's stock first when onto the market it tanked for a few weeks and Facebook is a much safer company than Spotify. Or all of this could be wrong because it is insanely hard to predict the stock market LMAO.
I believe that It is important for us to learn about the stock market at a young age. Even though it may seem like a large risk, if you invest carefully you are bound to make some money. We need to learn how to research stocks at a young age, so that in the future we can make these smarter investments.
I think that Spotify should be a safe investment, as a large mass of people us it nowadays. No one actually buys recordings or CDs anymore because of these mass streaming services such as Spotify. In the music market, Spotify is HUGE. No new or upcoming companies can really replace Spotify as the go-to streaming service because they would either have comparatively limited music options or likely be pirating music.
I'm not sure about Spotify. I'm afraid like a lot of these new tech companies, they rely too much on investor money. Spotify could even be a 'bubble', if they don't ever make a profit, the stock price will eventually go down along with people's savings. There have been many success stories such as Amazon, which took forever to make a profit (while gaining incredible market share along the way), but to invest early you really have to believe that Spotify can do the same. Always follow the most important rule of investment: don't invest what you can't afford to lose.
I would definitely put a generous portion of my savings in Spotify. Just like how Netflix made cable TV essentially obsolete, Spotify is quickly climbing to the top of its industry. I don't mind taking the risk, because like Daniel said it's not like I'm investing all of my (nonexistent) income. That being said, the smart thing to do once a person is out of school and making money is to allocate most of their savings to bonds and IRA's, and use maybe 10% of it for investing.
I would agree that Spotify would be a risky investment but possibly worthwhile. It has millions of users worldwide and as far as I can tell is a major frontrunner in its respective platform (along with apple music) and has room to grow. I think the main way in which Spotify is inhibited from gaining too much profit is in the royalties the company has to pay to major record labels, a whopping 70% of its expenditure as is stated in a another bbc article (http://www.bbc.com/news/technology-43237139). This article suggests that Spotify creates its own major record label to balance the losses from paying royalties which is an interesting idea. I think it's definitely safer for young people to invest in savings accounts but if you like to take risks than you can invest in individual stocks on top of your savings.
I think in the long run that Spotify is a good investment. These dips might be a result in early exposure (people are unsure). I think it is paramount that you should learn how to invest at a younger age. I think that a lot of people use Spotify, so now that is a stock, people should invest.
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